Sarah Green column

This week, manufacturing and energy members met Alistair Darling's special adviser Sam White at Nissan in Washington to outline their concerns about energy.

Share

This week, manufacturing and energy members met Alistair Darling's special adviser Sam White at Nissan in Washington to outline their concerns about energy.

Over the past two years, energy prices have soared, climate change has moved from the science pages to the front page and security of energy supply is under threat.

The Government responded to the energy review last July with The Energy Challenge. In four areas, we think the Government gets it right.

Primarily it confirms the market-based approach to energy. This is important, as returning to the central planning days of the Central Electricity Governing Board would build in inefficiency and inflexibility.

Second, ministers have recognised the value of a more diverse fuel mix with more low-carbon generation. This will mean we are less dependent on gas imports, so creating greater security of supply and will help meet carbon targets. It also says renewable obligations (RO) will be reformed to provide an incentive for firms to invest in technologies such as wave and tidal power. The RO obliges all licensed electricity suppliers to produce evidence that they have sourced a proportion of supplies from renewable sources.

Third, the Government identifies two obstacles holding back investment in energy infrastructure - the planning system and regulatory uncertainty. It identifies ways to streamline planning and makes it clear emissions trading is here to stay. Finally, the review contains measures to tackle energy efficiency in commerce and households.

But while the review gets the big questions broadly right, concerns remain. For example, it announced a plethora of consultations on the detail of the proposals. There is concern about whether there is the resource and ability to take forward these 12 consultations in parallel.

Another problem is the EU's emissions trading scheme. The review's indication that the Government might establish a minimum carbon price in the UK if the EU-wide price is too volatile is fraught with problems. And for many, energy prices are the key concern.

The review's conclusion is that its measures would smooth volatility in energy prices in years to come, while having a neutral or marginal upward impact on long-term prices.

While most firms would welcome less volatility, it would be hard to bear higher energy prices than European competitors and for this reason, it is likely the energy debate will continue to top the agenda.